Proposed changes to the bankruptcy laws that would allow bankruptcy judges to change unilaterally the terms of many mortgage loans, including the loan balance, as part of Chapter 13 bankruptcy proceedings, would, MBA believes, increase mortgage rates by at last one and a half points. By granting judges this power, it would throw into question the value of the collateral that backs every mortgage made in this country -- the home. Even a temporary change would be interpreted by the market as an additional risk, which lenders' prices must reflect.
In addition, lenders will be forced to require higher down payments and charge higher costs at closing. All these increased costs would be necessary to account for the new risks that lenders will face when judges decide to change how much borrowers owe on their mortgages.
For more information, please see MBA's Cramdown Issue Brief.